Thank you for visiting my blog. I post things I think will be of interest to high school students and teachers of economics. Please leave a comment if what you find here has been useful to you. THANK YOU!

Saturday, September 14, 2013

Has "King Dollar" been demoted to a Prince? Nice chart showing all major currencies and their ranking in terms of use in international transactions....

Here is a chart showing a list of currencies and their ranking in terms of use to facilitate a whole host of international transactions, such as the buying and selling of goods and services, or physical and/or financial assets. (The chart is from HERE with a HT from The Conversable Economist.)

The US dollar is still by far the most desired "medium of exchange" for engaging in international trade.

With most major commodities such as oil and agricultural products, US dollars are used to between the countries trading, even if the countries themselves do not use the US dollar as the currency of record.

In other words, if Russia sells oil to China the transaction is conducted in US dollars, not Rubles or Renminbi.

One interesting note from the chart is since 2001 the share of US dollars used in international transactions has decreased a bit but the use of the Chinese Renminbi has increased dramatically, moving from 35th place to 9th place in a relatively short period of time.

If the use of the US dollar in international transactions has declined since 2001, we might expect the value of the dollar to fall as well. Not to imply correlation is causation, but the graph below shows how the value of the US dollar has changed compared to a "basket of other major currencies".

Using 2001 as a base year, the dollar has declined in value roughly 21%.

Has "King Dollar" been demoted to "Prince"? Not yet, but he should be looking over his shoulder.